Monday, February 18, 2002

Value Investing, Sort Of

Relative value managers, such as Linell McCurry of Walnut Asset Management, keep their value bias, but they pick stocks that would make a Ben Graham purist blush.
Conjure up a typical value stock, and Biogen doesn't exactly leap to mind. Shares of the biotechnology concern sell for 8 times trailing revenues and 29 times trailing earnings. Analysts reporting to Thomson Financial/IBES expect Biogen's profits to increase 18% (annualized) over the next three to five years. This doesn't look like a stock shunned by Wall Street.

But consider Biogen (nasdaq: BGEN - news - people ) relative to its peers. The biotechnology stocks with market capitalizations exceeding $1 billion in the Market Guide database sell for an average of 74 times latest-12-month earnings. Limit the universe to biotech stocks bigger than $5 billion in capitalization, and the average multiple is still a rich 67. Alongside competitors, Biogen looks cheap.

Finding such "bargains" among high-multiple stocks is the domain of the relative value investor. "There are whole areas of the market that people will miss if they're looking for just low price-to-book multiples and low P/Es," says Linell McCurry, portfolio manager with Walnut Asset Management, a Philadelphia firm managing $700 million.

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